The 2022 proxy season had one of the highest records for majority-supported environmental, social, and governance (ESG) shareholder proposals in recent years, according to PWC.
But as the 2023 proxy season commences, companies are acting on – and implementing – less than two out of every five of those shareholder proposals, according to their proponents.
Majority-supported shareholder proposals are rare, representing less than 10% of the 900-plus ESG proposals[1] filed last year, but as they start to grow, company responsiveness to their shareholders is being put to the test.
This creates a dynamic where investors can evaluate how well corporate boards are looking out for their interests.
The investors we surveyed believe that companies are only fully implementing 23% of proposals, and that 14% will only be partly implemented. In approximately a quarter of cases the investor proponent believes the proposal will not be addressed at all.
From the perspective of companies, only half said they have implemented or will be implementing the proposals their shareholders passed, in part or in full. Around 6% would be addressed ahead of, or during, the next proxy voting season.
For 20 proposals (more than one-quarter of those analysed), we found that neither the company nor the proponent indicated that the company has, or would be, implementing them, with no publicly available information showing otherwise at the time of publication.
This article looks at why corporate board responsiveness to shareholder proposals that receive significant support matters, and how investors can emphasise their expectations for board accountability on ESG issues to investees as the 2023 proxy voting season approaches.
We analysed 78[2] majority-supported shareholder proposals from the 2022 proxy season that focused on ESG issues or improving shareholder rights more broadly.
To understand what has become of these proposals since the annual general meetings (AGMs) they were filed at, we issued surveys to the 26 shareholder proponents that filed them and the 70 receiving companies. The surveys were conducted between November and December 2022.
We received responses from the 24 proponents of 76 resolutions (representing 97% of the resolutions in the sample), as well as from 45 companies that received 52 resolutions (67% of the total resolutions).
The underlying data can be downloaded and found below.
Why does corporate board responsiveness matter?
Regardless of whether an investor voted for, or agrees with, a proposal that received majority-support, company attention to them is a sign of good shareholder relations and governance.
Conversely, if companies frequently ignore the will of their shareholders, it can weaken the voice of investors overall and dilute the efficacy of proxy voting and shareholder proposals as important investor engagement tools.
This is particularly the case for investors seeking to mitigate systemic sustainability issues. Without corporate boards that are responsive to shareholder concerns, achieving meaningful progress on these issues via shareholder engagement is unlikely.
In jurisdictions such as the United States, where the bulk of the majority-supported ESG proposals in 2022 were filed, these resolutions are not legally binding. Nevertheless, inaction should raise red flags for investors. Voting during AGMs is an important mechanism for a company’s shareholders to express their views to corporate boards and management teams.
Additionally, many institutional investors recognise proxy voting as a part of their fiduciary duty to clients and beneficiaries because it can be used to influence corporate behaviour, and thus, returns.
As fiduciaries, these investors undertake voting decisions with an eye to how the agenda items impact the long-term risk adjusted returns of the individual stock or their broader investment portfolio.
Many in the investment value chain are starting to coalesce around the idea that 50% should not be the threshold for when boards and management teams are responsive to shareholders. For example, proxy advisor Glass Lewis, the UK Investment Association, and the International Corporate Governance Network have all signalled that they expect boards to engage with their shareholders and demonstrate some level of responsiveness when 20% or more of shareholders vote contrary to board recommendations.
Regardless of the threshold, if majority-supported proposals are not seeing substantial implementation, investors cannot have faith in proxy voting as an effective tool to uphold their fiduciary duties.
Furthermore, in most jurisdictions, board directors of publicly listed companies are tasked with looking out for shareholders’ interests. When a substantial number of voting shares indicate they are in favour of a particular action, not taking such action can be seen as a governance failure on the part of the board.
It may also be an indicator of a captured board: when independent board members are more loyal to the company CEO or management team than to shareholders. Captured boards are more likely to govern in a way that favours management interests to the possible detriment of shareholders.
For instance, captured boards are less likely to fire underperforming CEOs, more likely to approve increases in CEOs pay (independent of performance), and are more likely to rubber-stamp investments recommended by the CEO[3] rather than acting as a critical risk manager.
As a result, companies with captured boards, especially those that do not have adequate ESG expertise among their independent directors, could be at a greater risk of failing to assist a company to transition to a low-carbon future or to mitigate its impact on systemic sustainability issues.
These failures could lead to increased compliance, legal, or operational expenses for companies in the long term.
Recommendations for the 2023 proxy season
The 2023 proxy season provides an important opportunity for investors to establish their expectations for corporate action on majority-supported proposals.
We recommend that investors consider the following:
Define what constitutes issuer inaction
Many proposals take more than a year to implement; but the AGM cycle gives investors specific, limited opportunities to weigh in on corporate actions and hold companies accountable.
Therefore, investors need to establish how much progress they expect to see on majority-supported proposals by the next proxy season – are they satisfied with companies simply committing to take action or do they expect evidence of steps taken towards implementation?
To assure investors that a proposal will not be ignored, it is essential that companies show some meaningful progress in the first year. This is because many investors are voting at hundreds, sometimes thousands, of companies ever year, making it difficult to track year-on-year progress, even for the most sophisticated investment managers.
Investors should also be wary of disclosures that make it sound as if action has been taken where the company has not actually committed to or changed anything. For example, ISS’s latest US voting guidelines indicate that some companies may disclose in their subsequent proxy materials that they have discussed a majority-supported resolution with their shareholders, while not making any commitment to act. Investors should think critically about whether such efforts, when used to delay action or commitment, are justified when over half of the company’s voting shares have already weighed in favour of a proposal.
Investors with holdings that have received a recent majority vote on a shareholder proposal should review company proxy materials and other communications released near the AGM to determine whether those updates satisfy their expectations for action; then act accordingly.
Take action
Stemming a trend of corporate inaction on majority-supported shareholder resolutions will require investors to systematically apply policies, engage with other market participants, communicate expectations to companies and hold company boards to account:
- Communicate with the companies directly. When speaking with companies that received a majority-supported resolution, investors should clarify what actions they are expecting to see by the next AGM.
Additionally, investors should communicate their rationale for backing a proposal if they originally voted to support it. If an investor opts to withhold board support (see below) because of company inaction, they should remember that often, companies do not understand why they have done so. In all cases, best practice is to communicate the rationale with investee companies ahead of voting, as this increases transparency and accountability, and provides an opportunity to initiate a dialogue and receive additional information.
If communicating ahead of the AGM is not possible, communicating with the company afterwards can still be impactful.[4]
- Hold directors accountable for failing to act on majority-supported resolutions. If an investor determines that the company’s actions are inadequate, or that it hasn’t demonstrated any action or commitment, efforts to hold the board accountable can be a powerful escalation strategy. Investors can do so by voting against all directors, or take a more targeted approach, such as withholding support for:
- the board chair or lead independent director
- the chair or members of the governance committee
- the chair or members of the committee with the closest oversight responsibilities to the proposal’s request
Throughout 2023, we will be convening workshops and creating resources for signatories to assist them in identifying best practices for board accountability, the tools they have at their disposal, and the challenges and opportunities they face to conduct this work.
- Update voting guidelines. Investor voting guidelines should state plainly their general expectations for what progress they think companies that receive strongly-supported proposals should make by the following AGM, and what they will do if those expectations are missed. Asset owners should also communicate their expectations to investment managers that oversee proxy voting on their behalf, where applicable.
- Engage with proxy advisors to ensure that their positions on board accountability and corporate responsiveness to proxy items match investor expectations.
- Subscribe to the companies they have shares in on the Find page of the PRI resolution database. This PRI resource provides notifications on upcoming AGMs and items to be voted on.
Fate of 2022 majority supported proposals since 2022 AGMs[5]
| Ticker | Company | Resolution name | % votes in favour (a) | From the proponent’s view, is the company taking action on the proposal? | From the company’s view, is it taking action on the proposal? | Any publicly available information of company actions on the proposal? (b) |
|---|---|---|---|---|---|---|
| A | Agilent Technologies | Right of shareholders to call special meetings | 81.73% | No | Yes, in part | 2023 Proxy Statement |
| AAPL | Apple Inc. | Risks associated with use of concealment clauses | 50.04% | Yes, in full | Yes, in full | Commitment to an Open and Collaborative Workplace |
| AAPL | Apple Inc. | Civil rights audit | 53.55% | Yes, in full | Yes, in full | 2022 ESG report |
| ABBV | AbbVie Inc. | Submit severance agreement (change-in-control) to shareholder vote | 50.37% | Yes, in full | Yes, in full | SEC Form 8-K |
| ALK | Alaska Air Group, Inc. | Submit severance agreement (change-in-control) to shareholder vote | 54.52% | Filer does not monitor (c) | Yes, in part | SEC Form 8-K |
| ALR.WA | Alior Banks S.A. | Adopt ‘Best Practice’ for WSE Listed Companies | 96.96% | No response to PRI info request | No response to PRI info request | Corporate governance information |
| ALRM | Alarm.com Holdings, Inc. | Adopt proxy access right | 52.69% | No | No response to PRI info request | not found |
| ANSS | Ansys Inc. | Declassify the board of directors | 89.94% | Filer does not monitor (c) | No response to PRI info request | not found |
| AOUT | American Outdoor Brands | Declassify the board of directors | 99.60% | Filer does not monitor (c) | No response to PRI info request | not found |
| ATVI | Activision Blizzard | Effectiveness and outcomes of company efforts to prevent abuse, harassment and discrimination | 67.35% | No response to PRI info request | Still evaluating the proposal and have not yet made a commitment | not found |
| BA | The Boeing Company | Report progress on CA100+ Benchmark indicators | 91.36% | Yes, in full | No response to PRI info request | 2022 Sustainability report |
| BDX | Becton, Dickinson and Company | Right of shareholders to call special meetings | 54.18% | Filer does not monitor (c) | No response to PRI info request | SEC Form 8-K |
| BLDR | Builders FirstSource Inc. | Report on GHG emissions reduction targets | 87.59% | No | Yes, in part | 2022 CSR report |
| CAT | Caterpillar Inc. | Report on long-term GHG targets aligned with Paris Agreement | 96.50% | No | Yes, in full | 2022 Proxy Statement |
| CB | Chubb Group of Insurance Companies | Report on efforts to reduce GHG emissions associated with underwriting, insuring and investing | 72.18% | No | Yes, in full | 2022 TCFD report |
| CCK | Crown Holdings Inc. | Right of shareholders to call special meetings at 25 percent ownership threshold | 99.10% | Filer does not monitor (c) | Yes, in full | SEC Form 8-K |
| CDW | CDW Corp | Provide right to act by written consent | 78.88% | Filer does not monitor (c) | No response to PRI info request | not found |
| CG | The Carlyle Group Inc. | Declassify the board of directors | 99.85% | Filer does not monitor (c) | No response to PRI info request | SEC Schedule 14A |
| CNC | Centene Corporation | Right of shareholders to call special meetings at 10 percent ownership threshold | 55.22% | Filer does not monitor (c) | Yes, in full | SEC Form 8-K |
| COP | ConocoPhillips | Right of shareholders to call special meetings | 52.95% | Filer does not monitor (c) | No response to PRI info request | not found |
| COST | Costco Wholesale Corporation | Adopt GHG reduction targets | 69.95% | Yes, in part | No response to PRI info request | Climate emissions reduction targets announcement |
| CSU.TO | Constellation Software Inc. | Report on racial diversity in the workplace | 62.78% | Yes, in part | No response to PRI info request | not found |
| CVX | Chevron Corporation | Oversee and report on reliability of methane emissions disclosures | 97.97% | Yes, in full | No response to PRI info request | Methane report |
| D | Dominion Energy | Report on risk and impacts of natural gas stranded assets | 80.13% | Yes, in full | Yes, in full | Stranded risk assessment report |
| DG | Dollar General Corporation | Political spending disclosure | 56.99% | Filer does not monitor (c) | Intends to address in next proxy statement | not found |
| DIS | The Walt Disney Company | Gender and racial pay gap | 59.62% | Yes, in full | No response to PRI info request | Pay ratio dashboard |
| DLTR | Dollar Tree, Inc. | Report on GHG emissions targets | 54.77% | No | Still evaluating the proposal and have not yet made a commitment | not found |
| FISV | Fiserv, Inc. | Submit severance agreement (change-in-control) to shareholder vote | 50.72% | Filer does not monitor (c) | Yes, in part | SEC Form 8-K |
| FTNT | Fortinet Inc. | Adopt simple majority vote | 72.54% | Filer does not monitor (c) | Yes, in full | not found |
| FTV | Fortive | Adopt simple majority vote | 55.34% | Filer does not monitor (c) | Yes, in full | SEC Form 8-K |
| GILD | Gilead Sciences, Inc. | Right of shareholders to call special meetings | 56.80% | Filer does not monitor (c) | Some engagement over email, did not provide PRI info | not found |
| GILD | Gilead Sciences, Inc. | Publish third-party review of alignment of company’s lobbying activities with its public statements | 50.22% | Yes, in part | Some engagement over email, did not provide PRI info | not found |
| GIS | General Mills | Report on absolute plastic packaging use | 56.49% | Yes, in part | Yes, in part | not found |
| GPN | Global Payments, Inc. | Right of shareholders to call special meetings | 50.39% | Filer does not monitor (c) | No response to PRI info request | not found |
| GT | The Goodyear Tire & Rubber Company | Adopt simple majority vote | 79.23% | Filer does not monitor (c) | Yes, in full | SEC Form 8-K |
| HCC | Warrior Met Coal Inc | Majority vote in uncontested director elections | 66.50% | No | No response to PRI info request | Amendment of bylaws filing |
| HD | The Home Depot, Inc. | Racial equity audit | 62.77% | Yes, in full | Yes, in part | Expanded reporting announcement |
| HD | The Home Depot, Inc. | Report on deforestation | 64.66% | Yes, in part | Yes, in part | Expanded reporting announcement |
| IBM | International Business Machines Corporation | Risks associated with use of concealment clauses | 64.70% | Yes, in part | Intends to address prior to next proxy statement | not found |
| IQV | IQVIA Holdings | Majority vote in uncontested director elections | 58.64% | No | Yes, in full | SEC Form 8-K |
| JACK | Jack in the Box Inc. | Reduce plastics use | 95.41% | No | No response to PRI info request | Sustainable packaging information |
| JACK | Jack in the Box Inc. | Allow virtual attendance at all shareholder meetings | 69.00% | No | No response to PRI info request | SEC Form 8-K |
| JNJ | Johnson & Johnson | Racial equity audit | 62.64% | Yes, in part | Yes, in full | not found |
| L.TO | Loblaw Companies Ltd. | Disclose supply chain audits | 72% (d) | No | Yes, in part | Update on human rights approach |
| LIN | Linde PLC | Adopt simple majority vote | 52.49% | Filer does not monitor (c) | No response to PRI info request | not found |
| LOW | Lowes Companies, Inc. | Gender and racial pay gap | 58.01% | Yes, in full | Yes, in full | Pay gap analysis |
| MCD | McDonald’s Corporation | Third-party civil rights audit | 55.77% | Yes, in full | Yes, in full | Wall Street Journal (2022) McDonald’s taps outside firm to assess its diversity efforts |
| MMS | Maximus, Inc. | Racial equity audit | 64.15% | Yes, in full | Yes, in full | Racial equity audit announcement |
| MO | Altria Group, Inc. | Civil rights audit | 62.16% | No | Yes, in part | Equity and civil rights assessment announcement |
| NCNO | nCino | Majority vote in uncontested director elections | 98.84% | Yes, in full | Yes, in full | SEC Form 8-K |
| NFLX | Netflix, Inc. | Adopt simple majority vote | 58.36% | Filer does not monitor (c) | Yes, in full | SEC Form 8-K |
| NFLX | Netflix, Inc. | Disclose lobbying expenditures | 60.38% | Yes, in full | Intends to address in next proxy statement | not found |
| NOC | Northrop Grumman Corporation | Right of shareholders to call special meetings | 50.39% | Filer does not monitor (c) | No response to PRI info request | not found |
| NSTG | Nanostring Technologies | Declassify the board of directors | 99.76% | No | Intends to address in next proxy statement | not found |
| NVTA | Invitae Corporation | Declassify the board of directors | 56.26% | No | No response to PRI info request | not found |
| NYCB | New York Community Bancorp | Declassify the board of directors | 93.08% | Filer does not monitor (c) | Yes, in full | not found |
| OGE | OGE Energy Corporation | Adopt simple majority vote | 59.28% | Filer does not monitor (c) | Declined to participate | not found |
| PSX | Phillips 66 | Report on reducing plastic pollution | 50.37% | No | Yes, in part | 2021 Chevron Phillips Chemical Sustainability Report |
| RAD | Rite Aid Corporation | Adopt simple majority vote | 65.45% | Filer does not monitor (c) | No response to PRI info request | not found |
| RGR | Sturm, Ruger & Company, Inc. | Human rights impact assessment | 68.52% | No | No response to PRI info request | not found |
| RUN | Sunrun Inc. | Risks associated with use of concealment clauses | 98.16% | Yes, in full | Yes, in full | Report on use of concealment clauses in the context of harassment, discrimination, and other unlawful acts |
| SBK.J | Standard Bank Group Ltd | By March 2023, report on progress in calculating financed greenhouse gas emissions from exposure to oil and gas | 99.75% (e) | Yes, in part | Yes, in full | Climate policy |
| SBK.J | Standard Bank Group Ltd | By March 2024, disclose financed greenhouse gas emissions baseline from exposure to oil and gas | 99.74% (e) | Yes, in part | Yes, in full | Climate policy |
| SBK.J | Standard Bank Group Ltd | By March 2025, disclose short-, medium-, and long-term targets for financed greenhouse gas emissions from oil and gas in alignment with the Paris Climate Agreement | 99.74% (e) | Yes, in part | Yes, in full | Climate policy |
| SO | Southern Company | Adopt simple majority vote | 98.41% | Filer does not monitor (c) | Yes, in full | 2022 proxy statement |
| SPR | Spirit AeroSystems Holdings, Inc. | Submit severance agreement (change-in-control) to shareholder vote | 67.55% | Filer does not monitor (c) | No response to PRI info request | not found |
| SRCL | Stericycle, Inc. | Civil rights audit | 60.61% | Yes, in full | Yes, in full | Annual corporate social responsibility report |
| TFX | Teleflex Incorporated | Adopt simple majority vote | 95.28% | Filer does not monitor (c) | Declined to participate | not found |
| TGNA | Tegna Inc | Right of shareholders to call special meetings at 10 percent ownership threshold | 56.04% | Filer does not monitor (c) | No response to PRI info request | not found |
| TKR | The Timken Company | Adopt simple majority vote | 79.87% | Filer does not monitor (c) | Yes, in full | not found |
| TRV | The Travelers Companies, Inc. (Co.) | Report on efforts to reduce GHG emissions associated with underwriting, insuring and investing | 55.81% | No | Still evaluating the proposal and have not yet made a commitment | not found |
| TRV | The Travelers Companies, Inc. (Co.) | Disclose lobbying expenditures | 52.74% | Yes, in full | Still evaluating the proposal and have not yet made a commitment | Public Policy Commitments and Contributions |
| TSLA | Tesla Motors, Inc. | Adopt proxy access right | 51.54% | No | No response to PRI info request | not found |
| TTI | Tetra Technologies | Adopt simple majority vote | 92.59% | Filer does not monitor (c) | Intends to address in next proxy statement | not found |
| TWOU | 2U, Inc. | Majority vote in uncontested director elections | 97.85% | Yes, in full | Yes, in full | SEC Form 8-K |
| USFD | US Food Holding Corp | Adopt short-, medium-, and long-term GHG emissions reduction targets | 88.49% | Yes, in full | Yes, in part | Science-based climate goal announcement |
| WM | Waste Management, Inc. | Civil rights audit | 55.02% | Yes, in full | No response to PRI info request | Third quarter earnings announcement |
| XOM | ExxonMobil Corporation | Report on scenario analysis consistent with International Energy Agency’s Net Zet Zero by 2050 | 50.96% | No | Yes, in full | Advancing climate solutions - 2022 progress report |
[5] Explanatory notes
Proponent and company responses to our survey were collected from 22 November 2022 to 28 December 2022. PRI research for publicly available information highlighting corporate action was conducted from 3 January 2023 to 17 January 2023.
(a) Represents number of shares voted for the proposal divided by the sum of shares voted for and against the proposal unless otherwise noted.
(b) Information found does not represent a value judgement as to whether the company is fully or partially implementing a majority-supported proposal.
(c) All proposals marked “Filer does not monitor” are from the same shareholder proponent. The individual does not follow up with companies where his proposals receive over 50% support because he believes it is the role of proxy advisors to hold companies accountable if they do not act upon the majority-supported proposals.
(d) Represents portion of vote by independent shareholders as reported by the proponent filer (34% overall support): https://www.bcgeu.ca/
(e) Percentage in support as reported directly from the company: https://reporting.standardbank.com/wp-content/uploads/2022/11/1668583060-SBKResultsofAGM310522V2.pdf
This research on majority-supported shareholder proposals is a pilot project and forms part of our work on Active Ownership 2.0. If you use this data and would like to see it replicated in the future, please let us know.
CREDITS | Author: Carly Jacobs, Senior Specialist, Stewardship | Editor: Jasmin Leitner | Design: Alessandro Boaretto
Downloads
Majority supported resolutions company and proponent response table
Excel, Size 36.13 kb
References
[1] According to proxy solicitation company Georgeson, 924 shareholder proposals were filed with companies listed on the Russell 3000 index in 2022 – see Early 2022 US AGM season data.
[2]We found 82 majority supported proposals in total; but four targeted companies that have since been delisted or acquired and will not have AGMs during the 2023 proxy season. These were therefore excluded from our analysis.
[3] Colese, Jeffrey L., Daniel, Naveen D., Naveen, Lalitha (2015) CFA Institute Journal Review Volume 45, Issue 2 Co-Opted Boards
[4] See the explanatory notes for the Policy Governance and Strategy module indicators PGS 32 and 34 in the 2023 PRI Reporting and Assessment Framework.
